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Monthly Archives: April 2017

Singapore Government Sets Small Business Controllers Astir As AEOI Comes Knocking

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singapore registered controllers red tape
Image by James Petts
Until now the controllers of most local businesses could sit quietly in the background, passively earning money. To the world at large they appeare to be unconnected with the company providing their income or wealth. In the new world of AEOI and FATCA, goverments no longer condone such anonymity. These folks are now deemed Registerable Controllers” whom we describe in more detail further on.

For government departments to learn who actually controls the business is a significant chore today. So legislation will now go into effect on 31 March 2017 to rectify that problem.

From that time forward, some companies must maintain a register of their “Registerable Controllers”. Government owned companies, financial institutions and companies traded on a stock exchange are exempt.
Their registrar’s office or the registered address will keep a new document known as the “Register of Controllers”. You can find more detail on it here

Registerable Controllers

The legislation is interesting in that it doesn’t say who IS a registerable controller; it defines who isn’t one.
If you (either as a person or a company) control a company indirectly through one or more controllers, you aren’t a controller. In that case, don’t have to appear on the register. In other words, for example:

  1. If you are company A and own or have a significant interest in company B and
  2. company B owns company C,
  3. then B would have to register with C as its controller and
  4. A would have to register with B as its controller.

Because 25% interest in the company or in its voting shares is the cut-off. A company could have up to four registered controllers, if they each controlled 25% of the voting shares.

More Information

This is just a brief summary of how the law works. There are more details for the immense variety of ownership and control structures that could exist, but the principal is always the same:

  1. If the company is already statutorily required to keep a record of its controllers somewhere, it isn’t required to maintain a second copy.
  2. If an individual or legal person controls a company indirectly through one or more companies, they need only be listed at the directly owned company(ies) subject to a above.

As always, the devil is in the details, which you can find here.

AEOI Forcing Moves from Offshore to Midshore

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AEOI drives Putin offshore
AEOI and FATCA make it more and more difficult to shield one’s income in offshore havens. Today, many people are finding that the risks and inconvenience of banking offshore merely to save on taxes no longer make sense. For that reason, more and more individuals and companies are moving to midshore locations. Locations that have strong banks and banking sectors and favorable tax systems are termed “midshore’.

Midshore Locations

Midshore locations are relatively few. The best are Singapore, Hong Kong, The Netherlands, Ireland and Delaware. If you know how to take advantage of their tax systems, then your real taxes can be quite reasonable. In addition, business that move to a mid-shore jurisdiction start being taken seriously. The reality isk that no one trusts businesses from offshore jurisdictions; their purpose is known by everyone. But a business in a midshore location can have low taxes but enjoy the benefits of the reputation of the jurisdiction.

Everything Leads to Trump

Much of the world knows about the Christopher Steele dossier about the Russian Government’s kompromat bribes and promised bribes to Donald Trump and his rather motley crew. The dossier claims that Vladimir Putin promised to give Trump a 19% share in Rosneft when he kills the sanctions on Russia. Now, you may choose not to believe the dossier, and that’s understandable. However, it is indisputable that the deal was funded by only 300 million euros. And 19.5% of Rosneft is worth at least 10.2 billion euros.

When the new owners of the transaction are traced, it turns out to be a Cayman Islands company. To top that off, of the three owners of the Cayman Islands company, no one knows who the third party is. But the other owners are a Cayman Island company owned by a Cayman Island company.  When it came time to regularise the deal and present a respectable face to the world, they chose to form a Singapore company, QHG Shares Pte. Ltd. Clearly midshore companies make sense, even when buying a President.

Rosneft boss, Oligarch, former Putin aide and Tillerson friend, Igor Sechin revealed the deal on December 7, 2016, exactly one month after Donald Trump was elected. In the process, Putin pounded another nail in the coffin of the Cayman Island’s reputation. He gloated that the deal was a sign of international faith in Russia in spite of the sanctions.

He could have boasted that it was a cheap price to pay to buy the President of the United States. Dirty dealings. And that’s why no one respects offshore companies. And shady types love them.

AEOI Says Now’s the Time

AEOI kicks the comfortable in the rear and says “Wake up!” It’s time to get moving and stay ahead of malevolent bureaucrats who would do you harm. Contact us to get started on regularising your operations. We have a number of competitive, high-reputation midshore locations to choose from.

New Country. New Business. New Life. AEOI & FATCA Part II

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Where not to do business:

By Sbw01f [GFDL (http://www.gnu.org/copyleft/fdl.html) or CC BY-SA 3.0 (http://creativecommons.org/licenses/by-sa/3.0)], via Wikimedia Commons
Percentage of People living on $1.00/day or less
We ended the first part of this discussion of inequality. While extreme equality isn’t needed to make a country a good place to do business, extreme inequality is a significant barrier to doing business in a country. That doesn’t mean that it isn’t a good place to settle down, but it does mean that must either concentrate on making your money elsewhere or concentrate on a business serving those who control the wealth.

This is the same table we presented in Part I of this essay:

Country Tax Percent
of GDP		 HDI Ease Of
Doing Business		 Inequality* 2025 Population Growth** Economic Freedom*** 2015 Real GDP Growth
New Zealand 27.8 0.913 1 0.362 5.6 3 3.00%
Singapore 13.5 0.912 2 0.464 0.7 2 2.00%
Denmark 34.8 0.923 3 0.248 0.7 18 1.00%
Hong Kong 12.5 0.910 4 0.537 -1.2 1 2.40%
Korea 13.9 0.898 5 .0302 -0.2 23 0.50%
Norway 22.4 0.944 6 .0268 3.4 25 1.60%
U.K. 25.0 0.907 7 0.324 2.2 12 2.20%
U.S.A. 11.4 0.915 8 0.450 3.0 17 2.50%
Sweden 43.3 0.907 9 .0249 2.2 19 4.20%
Macedonia 16.4 0.747 10 .0436 -1.6 31 3.20%

* The data isn’t available from a single source so Wikipedia has used a combination of CIA, World Bank and UN data. You can use the links on the Wikipedia site to get to the original data.

** Based on UN constant fertility forecast for the period 2025-2030. I selected this period because almost all population rates of growth are declining and if you are going to have a business, it is important to have an idea of whether you are enterenting a market that growing, static or shrinking. For comparison, the least developed countries have a forecasted birth rate of 27.3 births per thousand and that rate is increasing.

*** This data is from the Heritage Foundation which is a conservative political group in the U.S. that views the U.S. as a socialist state. (!) That should be borne in mind when interpreting the results…at least for the U.S. In any case, most of these countries rank fairly well on the scale of economic freedom.

Population Growth

Throughout the developed and developing world, the rate of population growth is dropping. In much of Eastern and Northern Europe as well as some other countries, the population is declining. We have not yet developed an economic system able to cope well with declining population. If you plan on doing business, you are far better off doing business in a country that is both prosperous and experiencing a reasonable rate of population growth. I’ve selected a date a bit into the future as it is important to know what is coming in this case, not what has passed.

It would probably be optimal to live in a society of zero population growth where there was full employment for everyone who wanted it as they were engaged in improving the quality of life rather than simply producing more and more stuff. Of the countries in this table, those showing positive growth are all reasonable choices based on this one criterion. Barring a change in economic systems in the next ten years the ones showing negative population growth should be avoided.

Economic Freedom

The following components go into the makeup of the Heritage Foundation calculation.  Heritage is not an honest broker so its judgement as to what exactly comprises economic freedom is skewed towards the Burkean ideal rather than that of Voltaire. Furthermore, they have an incentive to make the U.S. look bad when Democrats or moderate Republicans are in office.  That is something to keep in mind.

RULE OF LAW GOVERNMENT SIZE REGULATORY EFFICIENCY OPEN MARKETS
Property Rights Government Integrity Judicial Effectiveness Trade Freedom
Government Spending Tax Burden Fiscal Health Investment Freedom
Business Freedom Labor Freedom Monetary Freedom Financial Freedom

Real GDP Growth

This is a number that is fairly difficult to tinker with over the short term, but, of course, countries such as China have regarded it as just another piece of propaganda for so long that it is difficult to know what the actual facts are in their GDP reports. Having said that, the countries in our top ten are fairly consistent in their reporting methodologies year-over-year so we can be fairly certain that these growth numbers are real, even if their absolute GDP numbers may not be.

For lack of space we did not list Human Freedom or Polical Risk on the list at the top.  They appear below.

Political Risk

This is not a measure of political freedom. One can make a case that increased democracy brings with it increased political risk. Of course, one can say the same for totalitarianism. For business purposes, one doesn’t care particularly whether a country is democratic or autocratic, the one thing it must be is stable. So lower political risk is a measure of stability, not a measure of freedom.

Human Freedom

This may be the most important of all freedoms but, as business is defined today, it isn’t considered a necessary component although it is hard to point to any countries that have had long term business success without a great deal of human freedom. For that reason, we are presenting the scores here. First is a list of all the many indicators that are used and then the scores. You can download the report here:

Healthcare System Efficiency

WHO measures the health systems of the world to determine the quality and equity of the system in three areas, health outcomes, responsiveness and fairness in financing. From these they calculate a composite index which is what we display here. Because a poorly performing healthcare system adversely affects a country in numerous ways. It is an important measure to look at on its own, as we do here.

Best Countries to Live In

U.S. News & World Report uses sixty-three criteria to determine which the best countries are to live and work in. Among the criteria used for Entrepreneurship, for example, are: Provides easy access to capital, Well-developed infrastructure, Transparent business practices, Educated population, Skilled labor force, Entrepreneurial, and Connected to the rest of the world. These are just a few of the many scorings used. This is clearly an important adjunct to making your final decision as to where to live and to have a business.

Human Freedom Index
(1=best)		 2016 Political Risk
(100=best)		 WHO Health System Ranking
(1=best)		 U.S. News Best Country Index
(1=best)
1. Hong Kong 92 n/a n/a
3. New Zealand 87 14 41
5. Denmark 82 34 12
6. U.K. 81 18 3
13. Norway 81 11 10
15. Sweden 88 23 6
23. United States 85 37 7
35. Korea 81 58 23
40. Singapore 91 6 15
55. Macedonia n/a 89 n/a

 

How Not to Pay Taxes in the U.S. (Hint: Copy Amazon)

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Amazon is one of the world’s biggest companies and it isn’t just a digital company – it does physical things in the real world. Amazon has a physical presence in thirty countries and a digital presence everywhere. It had US$136 billion in revenues in 2016, a stock market valuation of more than US$450 billion. But it has never made a profit! And it probably never will. Think about that.

Vampire Profits

How do you grow a great company? Reinvestment, of course. If you pay taxes, that is money that isn’t available to reinvest. How do you avoid paying business income tax? That’s easy: don’t have profits; think of profits as a vampire, sucking away at your wealth.
Now you may need to adjust your way of thinking here, after all, wasn’t it the profit motive that got you into business in the first place? Probably not. You probably got into business to feel a sense of achievement, have some control over your own destiny and to accumulate wealth. None of those involve profits. Because of business tax laws, in fact, profits reduce your ability to accomplish your goals. If you don’t have profits you can use the money that you would have paid in taxes to undercut your profit-making competitor’s prices and to expand your business.

But How do I Make Money?

If your goals are as outlined above, money, per se, is incidental. You can eventually convert wealth to money if that is what you or your heirs want, but the wealth you will pass to your heirs is your company.

You may draw a salary for living expenses on which you may or may not pay taxes depending on how you have arranged your tax domicile. Through appropriate tax domiciliation and aggressive but legal use of company expenses, you should be able to avoid all or nearly all taxes.

How Well Does This Work?

Amazon is probably the foremost practitioner of the zero-profit strategy. Jeff Bezos intentionally started the company in a garage and grew it to today’s gargantuan size. Intellect, luck, hard work, and cost-avoidance were his tools and can be yours, too. Avoiding making profit taxes has given the company tens or hundreds of billions of dollars to use elsewhere. Amazon has kept prices down, made award-winning movies, provided low-cost delivery, and spun off new businesses. Jeff Bezos is not starving nor is it necessary for him to engage in complex tax-avoidance practices for the company. Nick Hanauer, Bezos’ first outside investor is doing just fine as well, largely as a result of Amazon’s success.
Not even Amazon can avoid making a profit forever. For all fast-growing companies there comes a point where good ideas become scarcer, execution becomes slower and the income continues to rise. When you hit that point, you’ll start making profits. This is part of the self-reinforcing feedback mechanism that leads to concentration of wealth. If you get to this point, you are truly on the gravy train.

Can I Replicate This?

Every business is different, but generally speaking, the idea of reinvestment and keeping prices low to foster growth will work for almost any business. All you need to do is to build the discipline into your everyday thinking. Do that and the world will look like a very different place. Your opportunities are far greater than you ever imagined.

How do FATCA and AEOI Affect Me?

The short answer to this is that there is no change except that if you minimize your salary as we suggested above, you won’t have much to be concerned about. Report your modest taxes honestly to your tax domicile and the tax authorities will be, at most, a minor nuisance and your taxes a minor expense or none at all.

New Country. New Business. New Life. AEOI & FATCA Part I

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Majestic Center Wellington, NZ. moderate taxes and good growth.
Majestic Center Wellington, NZ, Photo by Dabbelju
The best countries in the world have a compelling mix of taxes, lifestyle opportunities, and business support. Let’s take a look at the best of the best.

Generally speaking, all of us have the same core wants and needs. The Human Development Index (HDI) attempts to boil these needs & wants down to a single number to allow country-to-country comparisons. In our estimation, your quality of life should be paramount in your planning and the HDI helps you do that. However, if you are reading this, more than likely you are also interested in the best place to start a business. We’ve tried to provide you with the essential data for that, too. In this essay, then, I’ve attempted to provide you with the basic data you need to decide on where to work and to live.

The table below is gathered from a number of reliable sources (OECD, World Bank, etc.) and each statistic uses a consistent methodology for all the countries listed. I will discuss the first four columns in this post and the remaining four columns in the next one.

Presenting: The Data

Country Tax Percent
of GDP		 HDI Ease Of
Doing Business		 Inequality* Population Growth Economic Freedom** 2015 Real GDP Growth 2016 Political Risk
New Zealand 27.8 0.913 1 0.362 0.72 4 3.00% 87
Singapore 13.5 0.912 2 0.464 1.97 2 2.00% 91
Denmark 34.8 0.923 3 0.248 0.42 9 1.00% 82
Hong Kong 12.5 0.910 4 0.537 0.83 1 2.40% 92
Korea 13.9 0.898 5 .0302 0.48 34 0.50% 81
Norway 22.4 0.944 6 .0268 1.27 31 1.60% 88
U.K. 25.0 0.907 7 0.324 0.63 14 2.20% 81
U.S.A. 11.4 0.915 8 0.450 0.75 10 2.50% 85
Sweden 43.3 0.907 9 .0249 0.73 18 4.20% 88
Macedonia 16.4 0.747 10 .0436 0.16 43 3.20% n/a


* The data isn’t available from a single source so Wikipedia has used a combination of CIA, World Bank and UN data. You can use the links on the Wikipedia site to get to the original data.
** This data is from the Heritage Foundation which is a conservative political group in the U.S. that views the U.S. as a socialist state. (!) That should be borne in mind when interpreting the results…at least for the U.S. In any case, most of these countries rank fairly well on the scale of ecoomic freedom.

Taxes

Taxes are a complex issue that actually makes it impossible to perfectly compare tax burdens across countries, but it isn’t for lack of trying. We can safely say is that these data can affect the way you think about your life and your business. Tax data is presented in what is probably the only reliable way. There are so many variables that you must consult a professional before finalising any decision. Still, these numbers are fairly representative of the actual state of taxes in a country vs. what the laws say. The lower the number, the better your personal tax situation is likely to be.

You will find some cases, such as the U.S, where the nominal taxes are far higher than the actual taxes collected. For example, claimed billionaire, Donald Trump, may not have paid income taxes on fifty million dollars of personal income a year quite legally. It is important that before making any significant financial decision you think about the tax implications. With a good tax accountant or attorney it may be possible to use the deal to avoid taxes not only on the deal, but on other income you make as well.

Human Development Index

This score is incredibly important if you are going to raise a family or to hire competent workers in the country. The HDI covers three important aspects of your life:

  • Can you expect a long and healthy life?
  • Education: How educated is the populace?
  • How likely are the folks around you to have a decent standard of living?

For education, of the countries on this list, New Zealand is second, Norway is third and the U.S. is fifth in the world for education. But it is the total package you should be concerned about and the HDI gives you that number.

Taxes, AEOI & FATCA

Our core belief is in a universal taxation system in which everyone would pay taxes on their wealth and businesses would pay no taxes. Perhaps one day we’ll explain why this is so, but because that is unlikely to happen while our species is dominant. We’ll set that discussion aside for another time. In the real world, FATCA and AEOI are going to make tax avoidance for those wishing to live in a nice country, almost impossible. Almost. But if you are willing to live a peripatetic lifestyle, then you have the possibility of never living 183 or more days in a single location.

For non-Americans, that can make it possible to avoid personal income taxes completely. If you prefer to live a stable life in a decent country such as one of the ten listed here you will pay some income taxes. Your task is to find the country that best matches your criteria for a good place to live and do business while minimising your tax burden.

Ease of Doing business

How easy is it do deal with governments and banks? These are the criteria included in the index:

  • Dealing with construction permits
  • Getting electricity
  • Registering property
  • Getting credit
  • Protecting minority investors
  • Paying taxes
  • Trading across borders
  • Enforcing contracts
  • Resolving insolvency

Economic Inequality

More than a few people would yawn at the idea of economic inequality being a problem because they hope that they will be at the top of the heap looking down. We often think that way because our minds are utterly unable to comprehend the level of inequality in the world. I shall try to give you an idea, though:

Let’s say that you have one million dollars in the bank. We will assign your one million dollars the height of one pixel on a chart. Twenty-eight million dollars would make a line 28 pixels high. That’s just a bit more than a centimeter. So your line is 1/28th cm tall.  About 1/3 mm.
Bill Gates has been busily giving away his money for sixteen years now and has engaged in it exclusively for the past eight years, and yet his net worth is now 85.9 billion dollars. His line next to your pixel is going to be 89500 pixels tall. your wealth is 1/28th of a centimeter. In order to see his line fully, you will need a screen 32 meters tall. And most of the people in the world don’t have even the wealth that an atom would represent in that scheme. That is inequality.

Final Thoughts for Part I

By and large, it is consumption that drives the production pump. However, when there is gross inequality, money is unavailable for consumption and so producers don’t produce. For that reason you want your business to be in a country with a relatively low inequality (GINI) coefficient.

Start a business in a country that scores well on taxes, human development, the ease of doing business and economic equality and you are well on your way to living a long, prosperous and satisfying life.
There is no perfect country for starting a business, but these are some of the best by any objective measure. We can help you get up and running in several of these countries. Save time, money and aggravation. Connect with us.